Convergence towards a critical target: young innovative companies

Faster economic growth based on the knowledge economy is achievable if a clear and common target for European and member state policies can be defined and if the various research, financial, tax and human resource-related initiatives are better channelled toward this target.

What will make a powerful difference in economic growth is the number of new technology-based companies created and the rate at which they grow. Whereas the US is able to rapidly turn aggressive start-ups into world leaders, Europe mostly produces small companies and few global champions. Moreover, the various tools created to stimulate innovation in Europe (e.g. the European Investment Fund, the European Research Council, the Framework Programmes, national tax incentives, etc.) often lack a clear and long-lasting, common goal and thus fail to generate enough synergies and convergence.

What truly matters is not whether Europe spends 2 or 3 per cent of GDP in R&D, but how many innovative companies exist and what their contribution to economic growth and job creation is.

That is why the European Chain for Research, Innovation and Economic Growth should be focused on young innovative companies (YICs), by promoting synergy and convergence between Europe’s various stakeholders, resources and tools.

In France, a first generation YIC fiscal status (“Jeune Entreprise Innovante”) was introduced in 2004 (following a proposal to President Jacques Chirac in 2002); JEI is clearly successful (1,700 created to date) and is about to be implemented in several other EU member states. The YIC should become a pan-European definition, as follows:

• Independent companies, whether private or publicly traded, less than 15 years old (20 years for biotechnology).
  
  
• R&D expenditures greater than 15 per cent of total corporate expenditures (or even 25 per cent for the first 5 years and 15 per cent thereafter).
  
  
• Located in Europe.
  
  
• No limitations in terms of number of employees or annual turnover.

The YICs (an estimated 5,000 to 15,000 new companies per year in Europe, initially) should be fully exempted from the European Commission's "de minimis" rules on state aid (with no need for notification) and member states would be encouraged to offer strong but YIC-focused tax and social security cost incentives to these companies:  

• No local taxes or corporate tax for companies.
  
  
• No social contributions for employees.
  
  
• No personal wealth, capital gains or inheritance taxes on investments in YICs. 
  
  
• In addition, company founders and senior management would have a special tax status (similar to that of European diplomats) for their first 5 years of employment and special retirement benefits when relocating from another European country or elsewhere in the world.
  
  
• YICs would register and file annually key corporate data (field, R&D, financials…) with a centralised European registry, promoting networking, generation of statistics, cost and impact data.

This pro-YIC tax policy would very rapidly result in (i) strong attractiveness for entrepreneurs, experienced managers and investors from Europe and the rest of the world and (ii) healthy competition between member states. Member states could easily estimate cost (reasonable because of the specific definition of the YIC status) and return on investment (as already demonstrated in France with the JEI status). Within a few years, Europe would become known to scientists, entrepreneurs, investors and corporations as the most attractive location in the world for starting and growing an innovative company (no taxes, no social security costs – all the financial resources devoted to growth!).

In order to ensure that YICs are ambitious, grow rapidly, stay in Europe, and that human as well as technology and financial resources are available and that policies are synergistic and highly effective, several Europe-wide and member state initiatives would be fully or primarily dedicated to YICs and would promote  what these companies need for rapid and successful growth – brains and cash!

• 90 per cent of the European Investment Fund should be dedicated to investments in YIC-dedicated venture capital (VC) funds.
  
  
• The Framework Programme (FP7), the European Research Council (and the future European Institute of Technology) should have major funding programmes focused on research laboratories which collaborate with or belong to YICs, and with fewer of the usual bureaucratic constraints.
  
  
• A new €1 billion (over 5 years) "brain-hunting" fund (the Human Resource Innovation Fund, HRIF) should be dedicated to the worldwide, proactive identification, recruitment and temporary remuneration of top scientists, CEOs, senior managers and venture capitalists joining YICs, YIC-dedicated venture capital funds and YIC-affiliated academic laboratories. The HRIF could also develop post-doctoral fellowship programmes involving YIC-affiliated/associated research laboratories.
  
  
• A newly created European Pension Fund for Innovation (EPFI - "invest for your retirement and for European growth") would be dedicated to direct and indirect investments in YICs at all investment stages (seed, VC, post-IPO). The European Commission would encourage member states to waive all capital gains, personal wealth and inheritance taxes on these pension funds and would work with the European Investment Bank on a programme with a guaranteed minimum return.

The European Commission would audit all programmes annually to ensure they follow the YIC-targeted policy and would measure their effect (using the centralised YIC registry and data provided by member states): the number of YICs created, member state incentives for YICs, private equity and stock market investments, R&D expenditures, YIC-generated jobs, patents & products, revenues, market capitalisation, growth rate, etc.

The effect of the European Chain for Research, Innovation and Economic Growth would be strong, measurable and sustainable: inter-member state mobility, business attractiveness, vigorous private investments from Europe and foreign countries, world-champion companies and medium-sized technological leaders and measurable economic growth.

In addition, new regional, national or Europe-wide programmes (e.g. educational programmes targeting pre-graduate students, in order to attract talents to science and technology jobs in YICs; tax incentives prompting large corporations to structure YIC-dedicated corporate venture funds and spin of hi-tech YICs) could be added to the European Chain for Research, Innovation and Economic Growth in order to promote the growth of YICs – thus generating further synergies and convergence.